In the aftermath of the tsunami, the microfinance sector in Sri Lanka experienced an influx of donor funds – in the form of grants, soft loans and subsidies leading to a number of developments in this sector. This encouraged many microfinance institutions (MFIs) to expand their outreach to areas/households affected by the tsunami. Many MFIs implemented special credit schemes aimed at rebuilding the lives of the tsunami affected households particularly to assist them to revive various income generation activities. The Central Bank of Sri Lanka and the National Development Trust Fund (NDTF) also implemented special credit schemes to serve those affected by the tsunami. Moreover, a number of NGOs that have traditionally been involved in other welfare and development activities entered into microfinance. In addition, in the aftermath of the tsunami, many MFIs started lending at zero or subsidized rates of interest and mixed loans and grants which led to various adverse implications in the microfinance sector in Sri Lanka.
The key objectives of this study are as follows:
• To identify, analyze and evaluate the different microfinance programmes that were established by donors as an immediate response to the Tsunami and their impact on: (i) microfinance programmes/MFIs, (ii) clients, and (iii) spillover effects on the microfinance sector in general.
• To identify lessons learned on successful post-tsunami funding for microfinance.
• Provide recommendations to donors to adjust their concepts, policies and practices for development of the Sri Lankan microfinance sector.
In this regard, a survey covering 18 key MFIs in four districts in the South and East of Sri Lanka was carried out to assess the effectiveness of post-tsunami microfinance programmes on clients, MFIs and the microfinance sector as a whole.